The Latest Housing and Property Tax News
Individual Tax Updates │September 2017
A look at the taxation and housing-related superannuation changes that may affect you this Financial Year. An overview of the current tax and government updates, including Housing Tax Deduction, Capital Gains Withholding and Housing-related Superannuation Measures.
Topics:
2. Changes to capital gains withholding rules for foreign and Australian residents
3. Housing-related superannuation measures
1. Housing Tax Deductions: disallowing travel deductions and limiting depreciation deductions
As announced in the 2017 Budget, the Government has released exposure draft legislation and explanatory material for the housing affordability and tax integrity measures.
The Government introduced these measures as they have concerns around the abuse of deductions in relation to rental properties that do not represent a legitimate commercial need. Travel deductions for individual investors with residential investment properties, including travel costs associated with inspecting and maintaining properties, will no longer be deductible. This change will not prevent investors from claiming a deduction for the expense of engaging third parties such as real estate agents to provide property management services for investment properties.
This change will improve the integrity of the tax system by limiting plant and equipment depreciation deductions to outlays actually incurred by individual investors in residential real estate properties.
ATO warning on holiday rental properties
The ATO has issued a media release reminding taxpayers that it is paying close attention to rental properties located in popular holiday destinations around Australia.
Claiming deductions for your holiday home?
Make sure it is genuinely available for rent by answering these four questions:
- How do you advertise your rental property?
- What location and condition is your rental property in?
- Do you have reasonable conditions for renting the property and charge market rate?
- Do you accept interested tenants, unless you have a good reason not to?
To Do:
If you own a rental property, talk to your tax agent about whether these changes affect you in any way.
2. Changes to Capital Gains Withholding Rules for Foreign and Australian Residents
The ATO has issued a reminder that changes to the rules for foreign resident capital gains withholding (FRCGW) have come into effect for all property contracts entered into on or after 1 July 2017:
- For real property disposals where the contract price is $750,000 and above (previously $2 million);
- The FRCGW withholding tax rate is now 12.5% (previously 10%).
The changes mean that Australian residents selling real estate with a market value of $750,000 or more will need to apply for a clearance certificate from the ATO to ensure amounts are not withheld from the sale proceeds.
Where a valid clearance certificate is not provided by settlement, the purchaser is required to withhold 12.5% of the purchase price and pay this to the ATO.
The previous threshold and rate will apply for any contracts that were entered into before 1 July 2017, even if they are not due to settle until after 1 July 2017.
Main Residence Exemption:
From 9 May 2017, the Government will remove the entitlement to the CGT main residence exemption for foreign residents that have dwellings that qualify as their main residence. Therefore, any such capital gain or loss arising upon disposal of a foreign resident’s main residence will need to be recognised.
Principal Asset Test:
From 9 May 2017, the Government will modify the foreign resident CGT regime to clarify that, for the purpose of determining whether an entity’s underlying value is principally derived from taxable Australian real property, the principal asset test will apply on an associate inclusive basis.
To Do:
If you are unsure if or how these changes apply to you, please speak with your Accountant.
3. Housing-related Superannuation Measures
The Government recently released draft legislation which will establish a First Home Super Saver Scheme, and allow a special “downsizing” contribution into superannuation.
The draft legislation for the First Home Super Saver Scheme would allow individuals to save for their first home inside superannuation. Under the scheme, first home savers who make voluntary contributions into the superannuation system would be able to withdraw those contributions, and an amount of associated earnings, for the purposes of purchasing their first homes. Concessional tax treatment would apply to amounts withdrawn under the scheme.
The draft legislation for the downsizing measure would allow individuals aged 65 years or over to make non-concessional contributions of up to $300,000 from the proceeds of selling their main residences to their superannuation accounts. Downsizer contributions will be able to be made regardless of the other contribution caps and restrictions that might apply to making voluntary contributions. This measure would apply to proceeds from contracts for the sale of a main residence entered into (exchanged) on or after 1 July 2018.
To Do:
If you are unsure if or how these changes apply to you, please speak with your Accountant.
For more information or to schedule an appointment, please contact us below or call us on 1300 627 829.
If you are unsure of your tax obligations or are in need of specialist advice, please speak with your Accountant.
